Pay Secrecy as a Part of Business Strategies

This article discusses the concept of pay secrecy as a factor of performance strategy and its implications. It explores the consequences of implementing pay secrecy in organizations.

Running head: PAY SECRECY IS A PART OF BUSINESS STRATEGIES
PAY SECRECY IS A PART OF BUSINESS STRATEGIES
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1PAY SECRECY IS A PART OF BUSINESS STRATEGIES
A policy in the workplace, which pertains to prohibition of pay discussion, is known
as pay secrecy. The purpose of the paper is to discuss about the concept of pay secrecy as a
factor of performance strategy and its implication. The paper tends to argue on the
consequences of the implementation of pay secrecy.
Withholding information regarding pay and compensation structure of an individual
employee from all the other employees in the organization is termed as Pay secrecy. It can
also be understood as management’s decision of prohibiting the disclosure of pay scale and
compensation structure among other employees of the organization. In the year 1935, it was
being indicated by the National Labour Relations that workers have the right to get involved
in the activities, which pertains to the motive of collective bargaining or protection with
mutual aid, which reflects the restriction of the employers for the establishment of the pay
secrecy policies. President Obama signed an order in the year 2014, which promoted the
transparency of salary for implementing equal pay for equal work. The executive order also
ensured the identification and cure of salary discrimination of the women employees.
California Governor Jerry Brown marked the Equal Pay Act of California in the year
2015. It is a law that is aggressive in nature. The employers cannot stop the employees from
discussing their wages or threat them for doing so, under this Act. If an employee remains in
charge of the wage system and has payroll information, then disclosure of such information
without permission would be illegal. Most of the employers still practice the pay secrecy
rules even after the federal and state specific laws have been passed. Many force these rules
rather than stating them in writing that discouragesthe discussion of wages by the employees
thereafter implying to retaliate if they do so. These are illegal actions and are a sign of
discrimination of wages based on several demographic factors (Heydemann and Johnson
2019).

2PAY SECRECY IS A PART OF BUSINESS STRATEGIES
Pay scales are an integral part of performance. Most of the part of the performance
comes in the form of bonus. The goals of the organizations can be attained only through the
performance incentives that actually motivate the employees to perform better. The cognitive
motivational theory however suggests a different perspective. The attention given by the
employees on a particular task depends on a number of factors. The expectancy model
suggests that employees are more committed to those tasks that give them better performance
results. Employee perceives a positivity in those tasks that follows fair procedures and uses
proper information.Most of the firms are following a transparency and are opting for
discussion of paycheck in order to create a fairness and competition in the market. The salary
of one employee might be better than the other for the same position. The less pay
demotivates the employees whereas the high pay motivates the employees. The number of
hours worked, emails, the number of sales made and the attitude of work are all performance
indicators. When the employees find that their co-worker gets paid better for the same job, it
demotivates the employees and vice versa. Companiesshould restructure their incentive
packages vertically and not horizontally: the firms can motivate the employees through
promotions rather than performance pay.In simple terms pay secrecy can occur in different
forms and it depends on what type of information is not being provided. The reason why
companies adopt the pay secrecy policy is to minimize the conflicts that can arise between
the employees (Shaw 2015). The employees however are not only interested in the absolute
pay but they also consider the relative pay as a part of their motivation and attitude in
performing the work. Some firms may not allow the employees to discuss about their
individual salaries but they can discuss about the compensation structure (Scheller 2018).
Again the firm may discuss about the different ingredients of the compensation with the
employees in order to be more transparent (Smit and Montag‐Smit 2018). These
compensation structures and salaries actually motivate the employees and when the
employees discuss about these factors they get an idea about the overall condition prevailing

3PAY SECRECY IS A PART OF BUSINESS STRATEGIES
in the organisation, which in turn either motivates them or demotivates them. Pay secrecy has
its own consequences that will be discussed in the following paragraphs and it affects the
performance to a greater extent. Information from Australia and the US shows that pay
secrecy is associated with gender pay gap (Rosenfeld 2017). The organisations in Australia
are therefore opposing limits on pay secrecy.
Organisations adopt pay secrecy in order to reduce the exposure of inequality and to
avoid explanations for different pay. It also helps the under performer or the under paid
employees by shielding them. The management’s intention of pay secrecy however has a lot
of consequences. It has a negative impact on the task performed by an individual. It reduces
the employee motivation if the employees find out any kind of discrepancies in the pay
structure (Moriarty 2018). The restricted access to the information related to pay affects the
accuracy of the individuals as they start to perceive negative views from their own
understandings. Pay secrecy creates a false understanding of the compensation distribution
system; it creates a sense of inequality and creates misunderstanding (Mas 2017). The
management also becomes incapable to influence the worker’s behaviour. The employees
loose trust on the organisation and do not remain loyal anymore. The job satisfaction of the
employees is affected that is the employees try to switch for a better opportunity at some
other place where they will be satisfied with their salary as well as their position (Georgellis
et al. 2017). An authoritarian culture and leadership style is formed within the organisation.
Last but not the least it also affects the employees’ ability to take proper decisions about their
future career goals and jobs.
It can be very clearly understood that pay secrecy have a huge control over the human
resource management. Almost all the employers are afraid of pay disclosures. They are afraid
because they fear that if the employees find out what they are taking home and what their
bosses are taking home, and then there might be a pay war between the employees and the
employer. This can ultimately harm the organisation. The workers start thinking about some

4PAY SECRECY IS A PART OF BUSINESS STRATEGIES
absurd figures, which are not true, and suspicion is created in their minds. This damages the
organisation and its reputation as well. The 35-year-old Dean Hall followed a transparent pay
policy and unlimited leave policy and he pegged his own salary ten percent above the highest
salary paid to the employee (Cascio 2015). This has created a sense of loyalty and a positive
value within the organisation. Pay secrecy also includes stereotyping and it can affect the pay
decisions. Partiality in setting the payment will affect the workers. Two different workers
doing the same work will have different pay because of this. Under this pay secrecy the
employees cannot be sure about their fair and just treatment. It makes the performance
system ineffective. If there is a transparency in the pay system and it is being conveyed in the
organisation that the top performers having consistency in their performance are paid higher
than those who are not performing well and are inconsistent, then the top talents will be
retained and at the same time the underperformers will also grow the sense of performing
well to achieve that goodwill and salary (Marasi and Bennett 2016). Even though the
companies try to follow pay secrecy the employees tend to discuss their salaries in the open
forum or in the social media without any fearand this have forced most of the organizations to
follow the transparency system (Shellenbarger 2016). Transparency in the pay scales also
helps in the proper recruitment of fresh and qualified talents. The process becomes easier as
salary no more stays a mystery. The employees or the candidates even get to know the salary
of the person who is taking their interview along with the reason of such salaries. Salary
transparency is one of the best methods to protect against gender bias, racial bias or the
orientation bias. All the information are readily available on the single portal through which
the people can clearly see what the men are receiving and what the women are receiving
(Trotter, Zacur and Stickney 2017). The human resource can generally follow two types of
transparency, process transparency (how are the salary structure and compensation structure
prepared) and the full salary transparency (letting the people know how much are the
employees earning). There can also be a mix and match of both the processes.

5PAY SECRECY IS A PART OF BUSINESS STRATEGIES
Therefore, it can be concluded that,pay secrecy is harmful for the organisations and
the human resource must consider for adopting a transparency in the system. When there is a
transparency in the organisations the employees get motivated to work and they feel that they
are being paid properly and fairly. It drives the employee engagement within the organisation
and they feel confident. The organizations with higher employee engagement show a better
result in terms of productivity and goals achievement. It can be thus concluded that pay
transparency creates a fairness that in turn drives the engagement, which ultimately results to
the success of the business.

6PAY SECRECY IS A PART OF BUSINESS STRATEGIES
References:
Cascio, W.F., 2015. Managing human resources. McGraw-Hill.
Georgellis, Y., Garcia, S.M., Gregoriou, A. and Ozbilgin, M., 2017. Pay referents and
satisfaction with pay: Does occupational proximity matter?. British Journal of Management.
Heydemann, S.D. and Johnson, A., 2019. Eradicating Wealth Inequality Includes Achieving
Equal Pay. Contexts, 18(1), pp.76-78.
Marasi, S. and Bennett, R.J., 2016. Pay communication: Where do we go from here?. Human
Resource Management Review, 26(1), pp.50-58.
Mas, A., 2017. Does transparency lead to pay compression?. Journal of Political
Economy, 125(5), pp.1683-1721.
Moriarty, J., 2018. Against pay secrecy. Journal of Applied Philosophy, 35(4), pp.689-704.
Rosenfeld, J., 2017. Don’t ask or tell: Pay secrecy policies in US workplaces. Social science
research, 65, pp.1-16.
Scheller, E.M., 2018. Ignorance is Bliss, Or is it? The Effects of Pay Transparency,
Informational Justice, and Distributive Justice on Pay Satisfaction and Organizational
Commitment(Doctoral dissertation, University of Nebraska at Omaha).
Shaw, J.D., 2015. Pay levels and pay changes. Handbook of Industrial, Work, and
Organizational Psychology, Thousand Oaks, CA: Sage.
Shellenbarger, S., 2016. Open salaries: The good, the bad and the awkward. The Wall Street
Journal, January, 12.
Smit, B.W. and Montag‐Smit, T., 2018. The role of pay secrecy policies and employee
secrecy preferences in shaping job attitudes. Human Resource Management Journal, 28(2),
pp.304-324.

7PAY SECRECY IS A PART OF BUSINESS STRATEGIES
Trotter, R.G., Zacur, S.R. and Stickney, L.T., 2017. The new age of pay
transparency. Business Horizons, 60(4), pp.529-539.